Increasing numbers of pension schemes are looking to protect against longevity risk with a record numbers of buy-ins, buy-outs and longevity swaps in 2019.
New analysis by Hymans Robertson shows these totalled around £43.8bn in 2019, up from a previous record of £24.2bn in 2018.
Since 2007, when this market started, pension schemes have now insured around £0.25 trillion of longevity risks via these various methods.
Hymans Robertson found that last year there were 153 buy-in and buy-out transactions, worth an average of £286m per transaction. This was an increase of 39 per cent on the size of the average transaction the year before.
There were also five buy-in and buy-out transactions last years worth over £3bn each, whereas prior to this there had only ever been one transaction of this size.
Hymans Robertson says just three insurance companies — Rothersay Life, Legal & General and Pension Insurance Company — completed 75 per cent of all buy-in and buy-out transactions, equivalent to £34bn.
Hymans Robertson head of risk transfer James Mullins says: “The last decade saw the market for pension scheme buy-ins and buy-outs truly come of age as it grew from relative infancy to the impressive £43.8bn of premiums we saw written in 2019. An eight-fold increase compared to 2010.
“There were five buy-in and buy-out transactions that were each over £3bn in 2019: Allied Domecq, Asda, British American Tobacco and Rolls Royce, and telent.”
He says while these mega-transaction hit the headlines it is interesting to note that smaller transactions of less than £1bn each still accounted for around £15bn of buy-ins and buy-outs during 2019 alone, which he says is a further sign of how this market is maturing.
“The UK pension scheme risk transfer market is leading the world in terms of volume, maturity and innovation, with around £0.25 trillion of pension scheme longevity risk now having been insured via buy-ins, buy-outs and longevity swaps.
“To put that into context, that means that the longevity risk associated with around 15 per cent of all defined benefit pension scheme liabilities in the UK has now been insured, up from just 1 per cent ten years ago.
“Pension scheme risk transfer is developing rapidly in other countries too, such as the USA, Netherlands and Canada and those countries are watching with interest how the market develops in the UK.”